Low Carbon Fuel Standard Challenged (Again) in California State Court

After a lengthy process of policy review and revision, the California Air Resources Board (ARB) re-adopted the state’s Low Carbon Fuel Standard (LCFS) on September 25, 2015. The LCFS is expected to contribute approximately 20% of the statewide greenhouse gas (GHG) reductions required by 2020 under Assembly Bill 32. Moreover, the LCFS has been identified by Governor Brown as a key regulatory tool both to reduce petroleum consumption 50% by 2030 (a goal ultimately removed from Senate Bill 350) and to achieve the state’s 2030 and 2050 GHG emission reduction targets. The LCFS focuses on the transportation sector and requires a 10% reduction in the carbon intensity (CI) of gasoline and diesel from 2010 levels by 2020, with CI targets designed to become more stringent each year. The CI of fuels, expressed as grams of CO2e per megajoule, is calculated across the full lifecycle of transportation fuels (i.e., well-to-wheel) and is intended to include all of the GHG emissions associated with producing, distributing, and using fuels.

POET, LLC (POET), a South Dakota-based ethanol producer, filed suit in California Superior Court, County of Fresno on October 30, 2015, challenging the re-adoption. POET has challenged ARB’s LCFS rulemaking procedures successfully in the past. In 2013, the California Court of Appeal agreed with POET that ARB’s initial approval procedures for the LCFS violated the California Environmental Quality Act (CEQA), although the Court allowed the LCFS rules to remain in effect while ARB reapproved the regulations.

POET now argues that ARB’s re-adoption of the LCFS failed to comply with the writ of mandate issued pursuant to the first lawsuit and that it violates CEQA, the California Administrative Procedure Act (APA), and the Health & Safety Code. POET’s new lawsuit includes 20 separate causes of action, but generally focuses on co-pollutant impacts and procedural issues. Specifically, POET contends that ARB did not properly analyze nitrogen oxide (“NOx”) emissions, as required by the 2013 writ of mandate. POET argues that the failure results from ARB having improperly included the NOx emissions that resulted from implementation of the original LCFS in the CEQA “baseline” and improper “piecemealing” of a CEQA project. Moreover, POET argues that ARB fell short of its burden to consider increased NOx emissions resulting from biodiesel fuels and failed to adopt sufficient mitigation measures. POET also contends that ARB did not analyze the NOx impacts of other aspects of the regulations, including the use of certain biodiesel blends, the exemption of other blends in parts of the state, and the use of biodiesels in new technology diesel engines.

Beyond these complaints relating to ARB’s treatment of NOx, POET’s petition also alleges a failure to analyze, quantify, or mitigate: (i) the impact of “fuel shuffling” (the process by which regions with low-carbon fuel regulation, like California, effectively export high CI fuels to regions without such policies) on emissions; and (ii) the impacts of construction or modification of low CI fuel production facilities to meet demand that the LCFS creates. It also asserts that ARB gave insufficient consideration to proposed alternative measures (e.g., adjusting the Cap-and-Trade Program to account for whatever increment of GHG emissions reductions would be foregone by eliminating the LCFS), and that the analysis and mitigation of the LCFS’s own impacts are inadequate. Finally, POET claims that ARB failed to comply with the APA by not adequately peer reviewing the scientific portions of the rules and by being too slow in adding required documents to the rulemaking file.

The latest lawsuit closely resembles the first lawsuit. For example, the following items are at issue in both cases:

The determination of what is called “indirect land use change” or “iLUC”

CEQA adequacy of ARB’s analysis and mitigation of NOx emissions due to potential increases in the use of biodiesel

The compliance of ARB’s rulemaking file with the APA

ARB’s scientific peer review under Health & Safety Code § 57004

ARB’s maintenance of the public file under CEQA

The adequacy of ARB’s responses to environmental comments received

Unsurprisingly, ARB has filed a Notice of Related Case seeking that the same judge that heard the first case also be assigned to the second case. However, the original and the re-adopted LCFS regulations have separate administrative records and were adopted via independent rulemaking proceedings. Thus, despite the similarity of the cases, it would be folly to uncritically assume a similar outcome. That said, one can safely assume that the state will again mount a robust defense of the LCFS given ARB’s and Governor Brown’s perspective on the importance of the program for achieving California’s climate and public health objectives.

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